Minimum form of lower profits or attempt to


Minimum WagesIt sounds simple raise the minimum wage, reward hard work, and strike ablow against the society’s inequalities. It’s an emotional argument that blursout the truth and make’s people forget one important economic lesson: There’s nosuch thing as a free lunch.

The minimum wage has not been increased since theindustrial welfare commission raised it to $4.25 an hour. The IWC and thelegislature have not agreed since that time that any additional increase isjustified because of California’s recession and the downward turn in thebusiness climate. There was a measure out on this last ballot called prop 210which passed and increased the minimum wage from $4.25 an hour to $4.75 an hourand on March 1, 1997 it will raise to $5.00 an hour and beginning March 1, 1998it will increase to $5.75.

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The minimum wage in California has increased ninetimes in the past thirty years rising from $1.30 per hour in the mid 1960’s to$4.25 per hour as of July 1996. The increase has been less than the rate ofinflation during this period.The vast majority of the 22,000 members of the American EconomicAssociation agree that increasing the minimum wage will increase unemploymentamong young, unskilled workers. This 35% hike in the minimum wage paid by thebusiness will be one of the biggest increases in California history. And, itwill hit just when the state is recovering from a long recession.

Approximately2 million of California’s nearly 13 million workers earn less than $5.75 perhour. Most of these workers would be directly affected by this increase.

Roughlyone-forth of those earning less than the proposed $5.75 minimum wage areteenagers, while the remaining three-fourths are adults age 20 and over.Industries employing significant numbers of these workers include retail stores,child care facilities, restaurants, and fast food franchise. Much of the fiscalimpacts of this measure would be related to its various effects on the economy,including changes in employment, prices and profits. For example, most employeesearning less than the proposed minimum wage would earn more. They would alsospend more on goods and services, thereby generating certain increases ineconomic activities. At the same time, however, employers would face higher wagecosts, which they would either absorb in the form of lower profits or attempt tooffset through a variety of means. For instance, they may attempt to shift orpass along the cost of higher wages to the consumer by rasing prices of thegoods and services they sell.

Alternatively, some employers may offset the costof the increase in wages by automating, hiring fewer employees, reducing thehours, or limiting fringe benefits. Some businesses that are not able to shiftthe effects of the higher minimum wage may reduce economic activity inCalifornia. This would most likely occur in industries that have a large shareof expenses for low-wage workers or that are subject to competition from otherstates and other countries.In my view, an increase in the minimum wage would result in some declinein employment and business activity in California relative to what wouldotherwise have occurred. This increase would have varying effect on state andlocal revenues. For instance, a reduction in business activity, employment, andincome in California would result in lower income tax revenues.

These declinescould be offset, however, by increased spending on goods subject to the salestax. Higher sales tax would occur if business raised prices of taxed goods inresponse to the increase in the minimum wage, and this increase is not offset byreducing quantities of goods sold. Sales tax could also increase if thosereceiving the higher minimum wage spent a relatively high portion of their newearnings on goods subject to the sales tax.How the minimum wage should be changed, in California minimum wagesincreases have usually occurred in one of two ways. The first is a change in thefederal minimum wage, which results in an increase in California minimum wage tothe new higher federal level.

The second is a state administrative process.Under this process, the California Industrial Welfare Commission can, by amajority vote of its members, issue wage orders to raise the state minimum wagefor workers in any occupation, trade, or industry. The commission considersinformation from business, labor, and the public through a series of hearings.This process was last used by the commission in 1988, when it increased theminimum wage from $3.35 per hour to $4.25 per hour. This measure would requirethe Industrial Welfare Commission to issue minimum wage orders consistent withthe proposed minimum wage increase.

This increase in wages was to steep of an increase nobody is reallybenefiting from this, although it makes the employees earning the higher wagefeel better. I think a slow increase over time would have been better for theemployee because you would actually see your increase of money staying in yourpocket. Right now with your wages rising, your cost of living is also rising soin actuality you are spending more.Business

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